Money Or Money Substitutes? Implications of Selgin's Small Change Challenge (Report‪)‬

INTRODUCTION Selgin (2009) questions the practicality of 100 percent reserve requirements as applied to small change. The costs of producing token coins added to the necessity of keeping 100 percent reserves would be too high and cumbersome for a growing economy. As historical evidence, he offers the episodes of private coinage in 18th century England. Owing to an acute shortage of small change, private minters and mine owners produced small denomination copper and silver coins to pay as wages to their workers. These coins often bore redemption pledges and began to circulate beyond their local realm of issue. These token coins, Selgin (2009) argues, represent an example of truly private fiduciary media, without which the Industrial Revolution may not have taken place. Thus, the problem of supplying small change should be seen as a particular challenge to the defenders of 100 percent reserve banking. 100 percent reserves in small change, he argues, would only lead to impractically high costs and crippled commerce.